What to do about associate companies that fall outside operational boundaries

Net Zero for FIs
1

From our understanding, there are two types of categories 15 emissions:

  1. “Non-FS cat 15 emissions” -Those of associate companies. These are companies with an equity holding of less than 51% & therefore do not fall within the operational boundary of the group. As such they represent “equity investments” but would not represent financial service-related investments. Both traditional corporates & FIs may hold these ‘investments’.
  2. “FS cat 15 emissions” - Financial service-related emissions i.e., corporate bonds/ private equity etc. are the typical emissions thought of as category 15.

Financial institutions are required to set an SBT for their category 15 emissions. We wonder if the SBT-FS would only apply to FS cat 15 emissions (option 2) or would both be included in the target setting? We would assume the former, as associate investments would not naturally meet the definition of any asset class under PCAF or within financial services and therefore there is no guidance on how to include them. Furthermore, they are inherently different operations that should not be confused with the operations of FIs.

For clarity, we would suggest including all emissions within the GHG footprint, but then scoping out these emissions for the target setting. What would you suggest?

2

Thanks for posting.

If a financial institution has an equity investment in a company that does not fall under its operational boundary given the chosen inventory consolidation approach, then that investment would need to be covered based on Table 5.2 of the FI Guidance. For example, if the company is listed, then the investment would fall under listed equity, which is required to be covered by targets.